Being a property owner with tenants is a complicated endeavour. The details you must oversee multiply when you have developed the property for commercial use.

While many of the expectations you shoulder are standard for any owner of property, making sure your property and your tenants are safe and adequately insured can be a tricky task. For this reason, knowing what your renters are doing on the premises is imperative.

Depending on the size of the property you are leasing, you could have numerous tenants operating their businesses from your property, your commercial landlord insurance could be complex. It is highly likely that when they began their term renting your property, you knew what the nature of the company was and were able to report risks to your insurer. However, how much do you know about your renters now?

Understanding what is happening on your property is not unreasonable, nor does it violate any type of privacy statute. In fact, according to the Insurance Contracts Act 1984, Australian law compels you to inform your insurance company what you know or could reasonably be expected to know about your renters’ activities.

Why Must I Know All About My Renters’ Activities?

In order to provide an accurate price and the appropriate coverage, your insurance professional must understand the risks associated with your various renters. In some cases, your rates could go down, other instances the price you pay for your cover can go up, in some instances, the risks associated with a business make the business uninsurable to some companies.

For example, you own a small development and rent most of your space to several specialty retail shops. The shops all pose minimal risks. However, if a company that specialises in barbecues wants to move in, you will have a greater risk because of the combustible elements. The gas needed for the grills could destroy or damage all of the units in your property. Additionally, the nature of the business increases to the chance that a claim will occur.

What Can Happen if Information Regarding My Tenants’ Companies is Wrong?

The most significant consequence of incorrect information regarding your renters’ business dealings is the denial of an insurance claim. Denying a claim because relevant information is inaccurate may not always happen. However, insurance companies have the right to refuse a request. Australian law states that insurers must have an accurate and full disclosure of all relevant facts regarding the property and its use.

Example Case Study

Lee owns a sandwich shop. When he entered into his lease Lee’s intention was to offer cold sandwiches, salads, and desserts. There would be no reason to cook any food on the premises. The property owner reported this information to their insurance provider, and coverage rates set based on a shop with no cooking.

Sometime later, Lee’s customers request fried foods, and he purchases a professional-grade deep fryer. Lee does not think that it is relevant information and does not inform the property owner. One night an employee accidentally leaves the fryer on, and Lee’s shop, as well as the shops on either side, have significant damage.

When the insurance provider learns the fire started with a deep fryer, the company denies the claim. Not only will Lee not receive compensation for his losses, but the neighbouring units will also get no payment, nor will the property owner.

Not reporting changes in how a business is operating can be an exceptionally costly mistake.

commercial tenant insurance risks

What if I Did Not Know a Renter Made Business Changes?

Unfortunately, not knowing about changes will not change the outcome of your claim. The law governing declarations to insurance providers adds the phrase ‘reasonably be expected to know.’ In the case of Lee’s sandwich shop, the property owner bears responsibility for not keeping up with what happens on their property.

It is worth noting that in some cases, it is not reasonable for a property owner to know what renters are doing. However, if Lee were manufacturing illegal substances, he would not offer this information to his landlord, and it would not be reasonable to believe the property owner knew.

What Are My Duties Under the Law?

While statutes may vary from state to state, there are several general responsibilities that commercial property owners should know.

  • Take precautions to make sure that your property is safe from unforeseen events
  • Maintain unoccupied as well as occupied units on your property
  • Protect third parties from loss or injury as much as possible
  • Comply with all safety ordinances and regulations
  • Work to minimize the likelihood of any tenants experiencing business interruptions

coffee bar commercial insurance

How Can I Protect Myself and My Renters From Denied Claims?

As a commercial property owner, you can take several steps to guard against losses related to nondisclosure of facts about your tenants.

  • Visit Your Tenants – A quick drop in allows you to check for potential inconsistencies between what you see and what is on the insurance paperwork.
  • Put It in Writing – Draw up documents outlining a detailed account of what activities take place on the premises and get signatures from your renters verifying that this is correct and up to date information.
  • Educate Your Tenants – Take the time to go over how the conditions your insurance provider uses to calculate costs for your property and renters.
  • Look for Differences Between the Policy and What You Saw – Make sure what you saw on the premises aligns with the policy. If you are not sure about anything you discover, contact your insurance professional.
  • Pictures Are Worth a Thousand Words – Snap a few images you’re your renters’ businesses when you visit. The backup imagery can strengthen your claims in the event of a discrepancy. A series of pictures will give you a way to compare changes over time.

The materials and suggestions found in this blog post are for informational use only. They do not replace consultations with an insurance professional and are generalisations. Be sure to speak with a qualified insurance expert before altering any of your insurance policies.